The suit, filed Sept. 28 in federal court in New York, charges that Wells Fargo Securities, formerly Wachovia Capital Markets,sold $1.5 billion in highly rated securities to LBBW and others even though Wells (NYSE: WFC) had determined that the underlying mortgages "were not worth the purchase price and were riskier than promised," according to Houston law firm Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, which is representing LBBW, a subsidiary of German bank Landesbank Baden-Wurttemberg.

The suit also names New Jersey-based Fortis Securities as a defendant.

"We believe that the allegations have no merit and we will defend ourselves vigorously," said Wells Fargo spokesman Ancel Martinez.

Wells acquired Wachovia in 2008, during the depths of the financial crisis.

LBBW's attorneys said the alleged securities fraud came to light only after a Securities and Exchange Commission probe into a $5.5 million investment made by the Zuni Indian Tribe's employee pension fund.

"Wachovia tried to squeeze every penny out of a deal they knew was bad," said David Warden, one of the AZA attorneys representing LBBW. "Their greed was the very act that allowed investors to realize the misrepresentations Wachovia made to close a deal that had already gone sour."

Mark covers banking and finance.

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